New government criteria for VAT exemptions on housing draw accusations of racism

By NIV ELIS05/12/2014

Finance minister defends plan to give those who performed IDF, national service exemption from Value Added Tax on purchase of home.

Criteria announced Sunday on the outline of who is eligible for value added tax exemptions on new homes drew accusations of racism for strict limits that would mostly apply to Arabs and ultra-Orthodox Jews.

Finance Minister Yair Lapid’s original plan was to exempt residents who served in the army or in national service from the 18 percent VAT if they were buying their first apartment – and it was valued at NIS 1.6 million or less.

Attorney-General Yehuda Weinstein warned the policy would be illegal if it systematically excluded entire populations so Lapid agreed to expand benefits to those who did not serve, but only for apartments up to NIS 600,000 in value.

Adalah, an NGO that promotes Arab minority rights in Israel, said the policy ran counter to Supreme Court decisions on discrimination and ignored the plight of Arabs – who have deeper socioeconomic difficulties than Israel’s Jews.

Souhad Bishara, Adalah’s director of land and planning unit said: “There is no rational connection between giving the benefit to military veterans only and its purpose, which is housing assistance for young couples who find it difficult to purchase a home.”

Meretz chairwoman Zehava Gal-On on Monday demanded that Weinstein appear before the Knesset Finance Committee and explain the arrangement, which she called illegal and racist.

“Lapid’s program will expand the economic discrimination the Arab population of Israel suffers,” she said. “The plan to give exemptions for apartments up to NIS 600,000 is delusional and harmful – it’s clear there aren’t apartments at that price on the market.”

The plan would be equally unfair to the ultra-Orthodox, said UTJ MK Ya’akov Asher.

“The criteria the Finance Ministry announced would not shame an anti-Semitic government.

Haredim could maybe buy an apartment at NIS 600,000 on Mars!” Knesset Finance Committee chairman Nissan Slomiansky, from Housing Minister Uri Ariel’s Bayit Yehudi party, said that the NIS 600,000 limit excluded most apartments on the market, and called to raise the threshold to NIS 950,000.

Lapid told the Calcalist Small and Medium Business Conference in Tel Aviv on Monday that the differentiated criteria “says in the clearest way: whoever gives more, whoever contributes more, will receive more. We are not prepared to apologize for being Zionists.”

Labor MK Stav Shaffir said that the plan would only help the rich. “Show me one discharged soldier who has NIS 1.6m. without the help of his parents’ savings,” and argued that subsidies and mandates for affordable housing would be cheaper and more effective.

Gal-On said that the government could solve the crisis more easily if it did not direct money for building beyond the green line, where she said NIS 700m. of budgetary funding had helped construction increase 123% in 2013.

“The housing crisis we are all experiencing is the result of a clear policy, where the voice is Lapid’s voice and the hands are Uri Ariel and Bayit Yehudi’s hands, policy in which construction only happens in settlements,” she said.

The benefit will only be applicable to married couples – including common law marriage – with at least one child, single parents, childless married couples with one partner over 35-years-of-age, or single people over the age of 35.

The policy, intended to bring down the soaring costs of housing, which has risen some 80% since 2007, has been widely criticized as populist and fiscally irresponsible.

When the policy was first announced in March, Bank of Israel Governor Karnit Flug said that it doesn’t get at the real problem in the housing market – a supply shortage of new housing units and an increasing demand.

Michael Sarel, the Finance Ministry’s chief economist, resigned in protest, saying that narrow, temporary tax exemptions had a tendency to expand and become permanent over time, due to political pressure.

Indeed, in the two months since the policy’s announcement, where the Knesset Finance Committee estimated the cost at NIS 2 billion, the estimation has grown to NIS 3.5b.